If the United States imposes new tariffs on semiconductors and pharmaceuticals, East Asian economies will be “substantially” impacted and should prioritize reducing their reliance on the US by diversifying export markets and strengthening regional integration, according to a recent report.

“With no clear framework and [national tariff] negotiations extended to August 1, the near-term outlook [for the region] remains highly uncertain,” says research analyst Wu Yuhong, in a comment in the Singapore-based macroeconomic think-tank Asean+3 Macroeconomic Research Office ( Amro )’s quarterly update to its regional economic outlook.

The update – which was published on July 23 and follows Amro’s annual regional outlook released on April 15 ( two weeks after US President Donald Trump announced “reciprocal tariffs” against most of America’s trading partners )  – examines the impacts so far of America’s multiple rounds of tariff escalations and revised terms of trade with the 10 members of the Association of Southeast Asian Nations ( Asean ), plus China, Japan and South Korea.

The US, following the expiry of a 90-day pause, has threatened new tariff rates effective August 1 – with some East Asian economies facing even higher levies than those initially imposed. Amro calculates the average tariff levied on the region at 27%.

Trump has said some economies could face tariffs of 15% to 20% from August, with an extra levy of 10% for Brics economies ( which includes China ) and others aligned with the “Global South” grouping, namely Indonesia, Malaysia, Thailand and Vietnam.   

The notable exception is Indonesia, which faces reciprocal tariffs of 19% under a detailed agreement announced by the White House on July 22.

Aluminium tariffs most impactful

The recent US announcement of a 50% tariff on copper, according to Wu, poses “limited risks” to the Asean+3 economies, which account for less than 1% of copper exports to the US.

“However, the steel and aluminium tariffs, raised to 50% on June 3, have significantly impacted most regional economies, particularly Brunei, China and Korea,” the research analyst states. “Similarly, automotive tariffs have weighed heavily on car exporters such as Japan, Korea and Thailand.”

As well, Trump hinted at potential tariffs on semiconductor and pharmaceutical products, Wu notes, adding: “Should these targeted tariffs expand to cover all key products – representing over 40% of regional exports to the US – the economic impact would be substantial.” 

Emerging trade deals ‘opaque’

Most regional economies remain engaged in negotiations with Washington. But details of an agreement with Vietnam and the latest deals with Japan and the Philippines – announced by Trump on July 23 – are not yet clear ( the update is based on information up to July 21 )

“Outcomes remain uncertain,” Wu points out, noting the “opaque” nature of new and emerging deals. For example, “transshipments” through Vietnam would face a punitive tariff of 40%.

“But the definition of transshipment remains unclear – a very narrowly defined interpretation could be highly disruptive to established global value chains,” Wu shares. “The rapid and unpredictable nature of these developments is likely to generate significant impacts on financial markets, exports and the broader real economy of the region.

“Amid this uncertainty, continued efforts to diversify export markets and strengthen regional integration to reduce US economic dependence must remain a priority.

“In a global trading system that is increasingly being reshaped by divisive forces, it is imperative for regional economies to stay committed to a rules-based, open and transparent multilateral trading system, with the World Trade Organization at its core.”

Growth forecasts downgraded

For East Asia’s economic outlook, Amro downgraded its regional growth forecast for this year to 3.8%, down from 4.2% in April, to reflect the impact of tariffs and a global slowdown. The think-tank also cut its regional forecast for next year to 3.6%, down from 4.1%.

“These [tariffs, global slowdown] will likely reduce US demand, increase investment uncertainty and dampen consumer confidence,” the outlook says. “Given the broad scope of the tariffs, the associated slowdown in global growth would further weigh on the region’s outlook.”

The impact of tariffs, Amro expects, will be ”more significant” next year, particularly in economies that face higher US tariffs and are more reliant on external demand.

“Overall, however, continued strength in domestic demand and sustained external demand for electronics and tourism,” the report says, “is expected to continue to underpin regional growth.”

In Northeast Asia, China is expected to post the fastest growth this year ( 4.5% ), followed by Hong Kong ( 2.1% ). Japan and South Korea are both forecast to grow by 0.7%.

In Southeast Asia, Vietnam is forecast to have the fastest-growing economy ( 7.0% ), followed by the Philippines ( 5.6% ), Cambodia ( 5.2% ), Indonesia ( 4.8% ), Laos ( 4.4% ), Malaysia ( 4.2% ), Singapore ( 2.3% ), Thailand ( 2.1% ) and Brunei ( 1.7% ). The Myanmar economy, states Dong He, Amro’s chief economist, is expected to shrink by 1.0%.

Five main risks

The five main risks to the forecasts, according to the Amro report, include “more aggressive protectionist policies” from Washington, sharper US and European slowdowns and tighter global financial conditions. Other risks are a spike in global commodity prices and slower economic growth in China.

“The risk of further tariff increases remains significant,” the report points out, referring to the US threat to levy tariffs on exempted sectors, such as semiconductors and pharmaceuticals. “As these products represent a substantial share of exports to the United States for some regional economies, such measures could further dampen growth,” it adds. “Idiosyncratic considerations are also influencing tariff decisions.”

Under an adverse scenario – where tariffs revert to April 2 rates for China, Brics-aligned economies face an additional 10% tariff, and previously exempt goods incur a 25% tariff – Amro warns that East Asia’s growth could slow to less than 3% next year.

“Other non-tariff protectionist measures, such as expanding domestic sourcing procurement, stricter investment screening and broader export controls,” the report points out, “could exacerbate this impact.”

Fiscal, monetary responses so far

Regional policymakers, the update notes, have acted pre-emptively to cushion the trade shock from Washington.

Since April, central banks in half of Asean+3 economies have eased monetary policy, with the Philippines and Indonesia cutting rates twice during the quarter. China, Laos, South Korea, Malaysia and Thailand have also eased rates.

Japan, Indonesia, South Korea and Thailand have meanwhile taken fiscal measures to mitigate tariff impacts.

Deeper integration ‘urgent and necessary’

At the same time, policymakers have stepped up efforts to strengthen regional cooperation and deepen intra-regional integration to build longer-term resilience.

“Most regional policymakers have acted early to cushion the impact of the trade shock, and policy space remains available for further support if needed,” adds He, a former staff member of the Hong Kong Monetary Authority who later worked for the International Monetary Fund. “In a world that is increasingly being reshaped by fragmentation, deeper regional integration is both urgent and necessary.

"By strengthening regional cooperation while maintaining openness to the world and standing firm on rules-based multilateralism, Asean+3 can build resilience against external shocks and create new growth opportunities.”